Burrows v. Interborough Metropolitan Co.

Decision Date09 July 1907
Citation156 F. 389
PartiesBURROWS v. INTERBOROUGH METROPOLITAN CO. et al.
CourtU.S. District Court — Southern District of New York

Coudert Bros. (Wilson, Moore & McIlvaine, of counsel), for complainant.

Davies Stone & Auerbach, Strong & Cadwalader, Henry A. Robinson Cravath, Henderson & De Gersdorff, and Nicoll, Anable &amp Lindsay (Julien T. Davies, Geo. W. Wickersham, Joseph P Cotton, Jr., and De Lancey Nicoll, of counsel), for defendants.

HOLT District Judge.

The questions presented in this case arise upon several demurrers filed by different defendants to the complainant's bill. The demurrers are substantially alike. The principal ground of demurrer is want of equity; that is, that the bill states no cause of action. The object of the suit is to obtain an adjudication declaring that the transfer of certain stock of the defendant the Metropolitan Securities Company to the defendant the Interborough Metropolitan Company was illegal and void, and setting aside such transfer.

The substantial facts alleged in the bill or stated in the exhibits annexed to it are as follows: That the complainant, Burrows, is a citizen of Illinois, residing at Chicago, and the owner of 1,400 shares of the stock of the Metropolitan Securities Company. That he sues in behalf of himself and of any other stockholders who may come in and contribute to the expense of the suit. That, prior to the organization of the defendant the Interborough Metropolitan Company, the defendant the Interborough Rapid Transit Company was engaged in the maintenance and operation of the underground railway commonly called the 'Subway,' in the city of New York. That prior to January, 1903, the Manhattan Railway Company was engaged in the maintenance and operation of the elevated railways in the city of New York, and in January, 1903, leased its entire railroad property to the said Interborough Rapid Transit Company, which has since operated said elevated roads. That prior to February, 1902, the defendant the Metropolitan Street Railway Company became, by merger, lease, purchase of stock, or other means, in control of a large number of the street surface railways in the boroughs of Manhattan and the Bronx. That in February, 1902, the defendant, the New York City Railway, a corporation originally organized under the name of the Interurban Street Railway Company, became the lessee of the railroads of the Metropolitan Street Railway Company. That thereafter the Metropolitan Securities Company was organized and became the owner of all the stock of the New York City Railway Company. That as a result of these operations, in December, 1905, the Interborough Rapid Transit Company controlled and was operating the subway and the elevated railroads, and the Manhattan Securities Company held all the stock of the New York City Railway Company, which controlled and was operating all the street surface railways in the boroughs of Manhattan and the Bronx, the total length of such street surface roads being about 512 miles. That the defendant August Belmont and his business associates controlled the management and business policy of the Interborough Rapid Transit Company. That the defendant Thomas F. Ryan and his associate stockholders owned or controlled a majority of the stock of the Metropolitan Street Railway Company and the Metropolitan Securities Company. That under these circumstances Messrs. Belmont and Ryan, each in behalf of his respective corporations, entered into an agreement to effect a combination and merger of all of said railroads. That for that purpose they caused to be organized, in January, 1906, the defendant the Interborough Metropolitan Company with $55,000,000 of preferred stock, $100,000,000 of common stock, and the power to issue $70,000,000 of collateral trust gold bonds. That thereupon the Interborough Metropolitan Company, in January, 1906, entered into an agreement with the defendant Belmont to purchase from said Belmont all the capital stock of said Interborough Rapid Transit Company, said Metropolitan Street Railway Company, and said Metropolitan Securities Company, or so much thereof as said Belmont might acquire. That thereafter said Belmont acquired and transferred to the Interborough Metropolitan Company about 96 per cent. of the stock of the Interborough Rapid Transit Company, about 81 per cent. of the stock of the Metropolitan Street Railway Company, and about 96 per cent. of the stock of the Metropolitan Securities Company. That the total capitalization of said three companies was $117,000,000, as against the total issue of stock and bonds of the new company of $225,000,000. That in exchange for the stock of said three companies the Interborough Metropolitan Company issued its own securities in the following proportions: For each share of stock of the Interborough Rapid Transit Company, $200 par value of bonds and $99 par value of common stock; for each share of stock of the Metropolitan Street Railway Company, $100 par value of preferred stock and $55 par value of common stock; and for each share of stock of the Metropolitan Securities Company ($75 per share paid up), $93.50 par value of common stock. That the result of these transfers of the stock of said three companies to the Interborough Metropolitan Company was to destroy competition and create a monopoly in the business of the transportation of passengers in the city of New York, and was illegal and void, as being in violation of section 7 of the stock corporations law of New York (Laws 1897, p. 313, c. 384) and of section 168 of the Penal Code of New York.

The complainant's counsel have not relied, in their oral argument or in their brief filed, on the alleged violation of section 168 of the Penal Code; and, in my opinion, the facts alleged in the bill do not constitute a violation of that section. Section 7 of the stock corporations law of New York is as follows:

'Sec. 7. Combinations Abolished. No domestic stock corporation and no foreign corporation doing business in this state shall combine with any other corporation or person for the creation of a monopoly or the unlawful restraint of trade or for the prevention of competition in any necessary of life.'

The principal question in this case is whether the facts alleged in the bill constituted a violation of this section. The defendants' counsel asserts that by the acts alleged in the bill there was no creation of a monopoly, because the essential quality of monopoly is the power to exclude all others from the field monopolized. This is, of course, the strict legal meaning of the term. A patent or copyright in this country, or such exclusive privileges as Elizabeth and James I. were accustomed to confer upon individuals, which gave rise to the great historic controversy in England over monopolies, resulting in the decisions of the courts that they were void at common law, and the act of Parliament declaring that the king had no power to grant them, are monopolies in their strict legal sense. But the word has a different, but a commoner and equally well understood, meaning. When a person or persons have, in fact, obtained a substantially complete control of a particular business or article of trade, they are said to have a monopoly, although they have no legal power to prevent others from competing or attempting to compete with them. I think there can be no doubt that the monopoly prohibited in section 7 of the stock corporations act is of the latter kind. No corporation can, by combining with any other corporation or person, create that kind of monopoly by which they can legally exclude any one else from attempting at least to enter into the same business. Nothing but sovereign power can do that. The monopoly contemplated by section 7 of the stock corporations law is one created merely by contract, and is therefore not, in its legal essence, exclusive. But on the facts alleged in the bill, which the demurrer admits, it is difficult to see how the monopoly shown by them could be more complete. By it every surface street railroad and every elevated railroad and every subway railroad in the boroughs of Manhattan and the Bronx are combined in one management and control. No one can go up or down town in New York without using one of these roads, unless he takes a carriage or walks. It is as absolute a monopoly of the means of the transportation of passengers in New York as can be imagined which is not legally exclusive.

The defendants' counsel claims that section 40 of the stock corporations law authorized the transfer of the securities to the Interborough Metropolitan Company complained of. The part of that section relied on is as follows: 'Any stock corporation, domestic or foreign, now existing or hereafter organized, except monied corporations, may purchase, acquire, hold and dispose of the stocks, bonds and other evidences of indebtedness of any corporation, domestic or foreign, and issue in exchange therefor its stock, bonds or other obligations, if authorized so to do by a provision in the certificate of incorporation of such stock corporation, or in any certificate amendatory thereof or supplementary thereto, filed in pursuance of law, or if the corporation whose stock is so purchased, acquired, held or disposed of, is engaged in a business similar to that of such stock corporation, or engaged in the manufacture, use or sale of the property, or in the construction or operation of works necessary or useful in the business of such stock corporation, or in which or in connection with which the manufactured articles, product or property of such stock corporation are or may be used, or is a corporation with which such stock corporation is or may be authorized to consolidate. ' Laws 1892, p. 1834, c. 688.

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